Q4 2019 Earnings Call
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Once again, thank you for housing.
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[music].
Hello, and welcome to have good fourth quarter 2019 earnings conference call.
80 acre CEO filmmaker President Chief operating officer, if parents as you know how CFO joining me on the call at this time I could just trying to listen only mode.
Brief question answer session I.
Hi, My presentation in order for everyone have an opportunity to participate please limit your.
Acquirees to one primary and one follow up question.
Any forward looking statements made during the course the call well contained in the release represent the Companys. That's good faith judgment as to what May happen the future.
They were looking to be identified I've used the words believe.
Do you expect anticipate and for Jack.
And variations of these words.
Each of you cautionary statements and they really.
Addition, she referred to disclose using the company's form 10-K, and other I see see filings regarding factors that could cause actual results could differ materially from those projected in the forward looking statements.
As a reminder, this conference is being.
Accordingly, and it's now my pleasure to Kinda calorie House, Dave Hager, you may now begin.
Good afternoon. Thank you for participating in hub group's fourth quarter earnings call.
Today I have with me feel Yeager clubs, President and Chief operating Officer, and Terry Pazuto, Our Chief Financial Officer.
Oh goodness.
When they team with yet another record year for earnings per share with solid fourth quarter results in a volume constrained environment.
These results reinforce our belief that hubs diversified service offerings enable us to profit in a variety of economic conditions.
We continue to focus on reducing expenses through our network while.
An approval service and profitability and all of our business lines.
We expect intermodal pricing will be flat to down the first I'm 2020, well, we're covering to be positive in the second half as the truckload market claims.
We expect to continue to drive more to grow through our profit improvement initiatives as her broker.
Logistics brokerage and dedicated business goods.
I'll now turn the call over to fill to review our business lines.
Thanks, Dave as David said, we're pleased with our fourth quarter results given the challenging demand environment, we remain focused on improving our cost structure and delivering value to our customers, which drove our record.
Earnings for the year.
We surpassed our efficiency goals for the quarter and have continued our strong cost control efforts. We feel confident we can continue to improve our cost structure through enhanced operational discipline, while investing in technology and talent.
Now I will discuss our business unit performer.
Intermodal volume was down 11%.
Yeah, and revenue was down 9% for the quarter. The volume decline was primarily due to soft demand as we saw a lighter peak season as won't increase truckload and intermodal competition.
In addition, we saw 1% volume impact from Wayne cancellations and weather disruption.
Our team operated wells, we maintained our Franklin and operational.
Discipline. However, we saw 150 basis points compression and gross margin as a percentage of sales compared to last year due to increased insurance and claims costs increased railcar and lower third volume.
Our service levels were at record highs as both hub and our rail partners focus on delivering a world class customer.
Okay.
We're early in bid season, but we are expecting to see a return to growth this year and our intermodal business.
Brokerage load count decreased 4% in the quarter. However, we saw 490 basis point improvement in gross margin as a percentage of sale.
We saw a lighter demand environment than last year in one spot activity, which led to the.
Client volume.
We're pleased with our transformation of our brokerage and are seeing strong progress positioning that high service offering with our customers were poised for growth and believe there is a significant opportunity to cross sell brokerage to our other customers.
Our logistic business posted strong results and profitability with a 460 basis.
His point improvement in gross margin percentage, but what the decline in revenue.
We continue to see the benefits of our technology investments new product enhanced operating model and focused on continuous improvement.
Back is also continued to perform well and is enabling us to access small to midsized clients and cross sell other hub solution.
We continue to have a very strong pipeline and are anticipating significant growth this year.
Dedicated saw a decline in revenue and a 50 basis point degradation in gross margin percentage year over year, but a 210 basis point improvement sequentially, despite headwinds from insurance and claims costs.
We have continued to rationalize poor performing.
And are making progress in improving our operational discipline through enhancing our count that them to prop that.
We have ample upside and improving the service line this year and our entire team is focused on the execution of that plan.
I've had a strong quarter in a difficult freight environment and a record year. Our team is focused on continuous improvement.
An efficiency and we're seeing the benefits of our investments we are intent on improving our threed operations in both dedicated in grade while growing our service lines and improving our cost structure. We remain on track with the profit improvement initiatives that we just got Blackwater and we will continue to invest in talent technology.
Finally, I also would like to thank our entire.
Higher hub team for all their effort and delivering a record year for Hubbard now ill hand, it over to Terry to discuss our financial performance. Thanks salary Hello, everyone I'd like to highlight three point for the fourth quarter hurt gross margin as a percentage of sales at 14% with the high fourth quarter and have history.
Due primarily to the addition of the cake that business in December of 2018, and the transformation of our truck brokerage business.
Second we're excited about the relentless execution of our profit improvement initiative, we can create a 12% decrease in headcount This January bird.
Four.
The decrease in head count since September Thirtyth.
Sorry dedicated gross margin as a percentage of sales improved 210 basis points sequentially as result of operational and revenue management initiatives, we believe trucking, including our drayage operation is one of the greatest remaining.
Opportunity to improve profitability.
Now, let's take a more in depth luck at our performance in the fourth quarter hunkered revenue decreased 12% to $981 million because of the decline in revenue and offshore service Brian.
The largest decline for an intermodal at 9%.
And truck brokerage at 29%.
Intermodal revenue decreased primarily because of an 11% decrease the remote.
Truck brokerage revenue was down because of a declining spot business and project work.
Gross margin as a percentage of sales with 14% the highest fourth.
Quarter in top history gross margins as a percentage of sales increased 40 basis points over last year, driven by a 460 basis point improvement and logistics gross margin and a 490 basis point improvement in truck brokerage gross margin.
These increases were partially offset by.
In intermodal and dedicated credit market as the percentage of sales.
[music], partly to an increase in insurance and claims cost, resulting from favorable development on prior year claim.
Salaries and benefits were down $6 million, due primarily to lower headcount and lower compared to the fourth quarter.
2018.
Operating margin was 4.3% compared to 4.7% last year.
How can still limited earnings per share with 84 cents. This is compared to 2018 diluted earnings per share of continuing operation on the.
Ill add one a decrease of 17% driven by the spot freight market, partially offset by the savings from our profit improvement initiatives.
Looking at our cash flow.
Cash from operations for the year totaled $255 million free cash flow was 170 million.
One dollar.
EBITDA for the year, what $269 million compared to $208 million last year or an increase of 29%.
Our cash balance at the end of December was $169 million.
Turning now to our guidance.
For 2020.
We believe that our 2020 earnings per share will range from $3 and 39 down to $3 and 64.
We project revenue will be up low to mid single digit.
We expect gross margin as a percentage of sales for the full year two.
He spent 13.5% to 13.9%.
We believe that our quarterly costs and expenses will range between $92 million and $94 million.
We believe that our effective tax rate for the year will be between 24% and 25%.
We plan on between $115 million and $120 million on capital expenditure and to fund these expenditures with the combination of cash and debt.
That wraps up the financial performance over to you gave for closing remarks. Thank you Terry 2019 proved to be up.
Another year of record profit for hover in a difficult freight environment.
All of our business lines contributed to this record performance, reflecting the value of hubs diversified service offerings, we had great success in reducing 60 million costs within our network and we remain focused on we're moving get another $40 million and costs in 2000.
In 2000.
And with that we'll now open up belongs to any questions.
Thank you well now begin the question answer session.
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And our first question Scott Group from Wolfe Research Your line is open.
Hey, Thanks afternoon, guys. So.
Can you help.
Yes figure out how much.
Cost of you did you realize in total.
29 team and then what do you think is the right way to think about 2020.
Yes, Scott we're on track, we announced that the third quarter that we had at that time.
About $60 million.
Identified opportunity for cost savings and a lot of that was realized in August and so we thought a lot of that savings in the fourth quarter.
This year that we'll continue our into next year. So.
Estimating.
Maybe maybe half of that you saw.
2019, and another half of that roughly in 2020, and then on top of that we had the $40 million the cost savings that we identified that we have not taken action on that we started to take action on in the fourth quarter and that we will continue on during 2020.
We anticipate that that will be completed by the third quarter and that will have fully realized by them.
Well the ratable through 2020.
So maybe get half of that half of that second bucket in 2020.
Yes, yes.
Okay.
And half of it about.
If you wanted to know what the split it between us DNA and.
Margin of the 60 million, it's about 50 50.
And of that 40 million, it's about 75 million to gross margin and 20.
Okay 75, gross margin 25 stress test.
Yes, Kevin So I would I would tell you the 75% of 40 million is mostly related to our trucking operation.
Really we're looking at four key categories, there being our maintenance procurement driver retention and utilization and then lastly, continuing to push on our revenue.
That's great improvements as the work, we're feeling very confident in our ability to deliver on that and and they're going to continue to push that forward.
So with all that why are you guys raising the quarterly cost guidance.
That is due to a couple different thing I mean, if you wanted to.
Compare Q4, you well to Q.
One I guess, that's one way to look at it we're going to have higher DNA on quarterly basis of about one and a half million dollar. We also think from Q4 Q on Q1 will have higher salaries and benefit.
Totaling about three and a half million dollars that from a few different thing in the first quarter payroll taxes and benefits are higher because people have at Max out. We're also planning on higher Commission.
And Dan DNA really should be.
Flat.
Hard to Q4.
And then lastly, I would just highlight we do have a consulting engagement in place right now that is an investment in supporting the trucking improvement that is also an increase in a few nay that we'll see you seem to larger impact of that in the first half of year.
Okay.
The other piece of the salary benefits as quick they're going to give our people rates that are out there there and there too.
Okay can.
Can you talk about what you're seeing with intermodal pricing and bid season, and then maybe just compare that versus your rail costs.
Guessing this is a year where rail costs are up more.
And then pricings up so within the guidance, what's the net impact you've assumed.
To net revenue.
Sure. So I would tell you. It's early in bid season, and we are seeing a competitive environment, both with truckload and intermodal competition. We believe we are performing well, we're continuing to execute on our strategy.
With our yield management focus, but also making sure that we're balancing our network and reducing repositioning costs and continuing to drive business into where we know we have cost and structural advantages.
It's a little early to tell exactly what pricing will be like but I would tell.
It is somewhat competitive environment out there and we're focused on making sure that we have to write business for our network.
So Dave I wouldn't say also though we do a clear visibility on a rail costs and what those increases will be for this year.
And in all candor, they're probably we think in line with.
What we had in 2019 as well.
So we got clear visibility, we understand where it's going to be often are going to attempt to regain all the rail cost increases as well as of put some to the bottom on.
I just wanted to understand like so you've got these cost.
Pieces and then.
Got guidance, that's earnings flats up a little bit. So like are you assuming a negative real price cost spreads in the guidance already or is that.
Right and the first half of the year, we're assuming that.
That that prices are down and so.
That that we do think that over it then.
In the second half of the year, they window would be positive not a lot, but I mean single digits. We do believe it's going to go from being down a bit to flat to in price increasing in the second half of your and then yes, just on top of that we do have built in some increases in insurance claim costs and warehousing.
Cost as well on top of that so those would just be the other headwinds we have in the gross margin.
Okay. So with that maybe just last question I'll pass it on maybe Terry just some thoughts on the quarterly cadence that you expect.
Yeah, we have we believe that the first half of 2020 will be approximately.
Flat as compared to the first half 2009 pool that second half really depends on how quickly the truck load market titles and we'll react quickly when it does.
So our expectation is that that second half of the year is better than the first half of the year.
Alright. Thank you guys. Appreciate the time thank you.
Your next question comes from Justin Long Stephens. Your line is open.
Okay.
Thanks, and congrats on the quarter just to clarify on that last question was that in reference to TPS yep. Okay.
Maybe you can.
Help us out with intermodal volumes as well I know Phil you mentioned in the prepared remarks that you expect growth. This year, but can you give us something in terms of that the order.
Magnitude, it's getting baked into the guidance and how are you seeing that play out over the course of the year sure. So we're anticipating load to.
Mid single digit volume growth for the year first quarter, we are anticipating being.
Being negative as we did have a very strong.
Start to the year last year and continually increasing throughout the rest of year as we progress with the fourth quarter being the largest percentage increase just given.
Obviously, a lower comparable but we're also going to continue to see bid wins and we are seeing a lot of customers start to think more long term about converting back to intermodal to make sure that they have capacity available. So we do feel as the year progresses, we will see volume continued to improve as the guys. Adjusted this is Dave.
Theres no question because the comparable are easier because 2019, obviously started out strong and then eventually got weaker last year, we had no spring peak.
Last year, we had a very moderate.
Our Christmas holiday.
Peak so.
We've had been also that the inventory levels of kind of.
Been drained or little bit flatter versus one a lot of people had pulled forward inventory last year in order to avoid the.
There's so there is some tailwinds, but it is going to be a tale of two halves.
Okay. That's that's helpful and.
Maybe one on brokerage obviously, it's a competitive.
It is market out there I was wondering if you could talk through some of your assumptions for that segment from both topline and margin perspective, and maybe you could go through some of that company specific benefits that could play out this year.
Yes, we're projecting high single digit to low double digit growth.
On the top line based on New business Awards from.
Existing and new customers because of our new structure in our truck brokerage businesses, while the technology investments, we made that allow us to better stores capacity in the more efficient. We also expect to grow our spot volumes in 2020.
And were planning on expanding our account development inside our inside sales team focused on brokerage, we expect that gross margin as a percentage the sale will decline slightly into 2020 because of the strong levels that we achieved in 2019 and at the truckload Nok.
Title.
Margins still probably get pressure to that.
Yes, I would add we are continuing to see wins our service offering is garnering trust I think with our with our clients which is fantastic.
And we're finding that our carrier reps are becoming much more productive.
And so really the job is to make sure that we're layering in high quality freight.
That is going to allow our carrier up to continue to do what they're doing so well right now we have a great baseline great technology.
Really improved enhance leadership and feel very good about our ability to continue to to.
Improve that service line so really.
And with the results we've seen thus far though.
Okay, Great I'll hop back. Thank you I appreciate the time.
And your next question comes from Ben Hartford from Baird. Your line is open.
Good evening everyone.
That was helpful.
Revenue growth 2024, how you're thinking about brokerage can you do.
For the same for.
The other two segments would just sticks and dedicated.
Sure, we expect and I'll talk about logistics first we expect logistics will have its John year pipeline good.
We will have the full impact of several recent big win.
And in addition, we've got new.
Service line within our logistics group.
So we expect there to benefit from that and so we expect the most significant growth really in logistics company high single digit on the topline too low double digit and we're off to expecting pretty good growth on the margin.
Side, we're expecting gross margin as a percentage of sales to be fairly similar to what it will keep Apple memorial pool.
Intermodal, it's the other that should play.
So for intermodal, we expect gross margin as a percentage sales to decline slightly in 2020 based on our.
Dictation for price global rail costs, which are partially offset by the profit improvement initiatives that we have.
And.
We expect gross margin.
We'll be a little lower in the second half as compared to the first half.
To that carryover pricing that we have in the first half.
The year customers compared to the second half.
And topline growth are being up slightly and then I think you also we're looking for dedicated and we are anticipating pretty.
Down revenues and dedicated we're very focused on making sure that we transform that business through the right revenue management.
And the right processes in place and growing with the right customers in the right business. So we're we're making progress on that I would tell you. We're early stages and that's why we're anticipating a flat year for dedicated.
Okay. That's 10%, we do expect gross margin as a percentage of sales to be up between 200 300 basis points.
Thank you.
Okay great.
Dave just your perspective on 2020 back to the intermodal bid environment.
And what's going to be tough in the front half of the year do.
How do you expect mixed trends and what is going to be the approach where do you think you're going to be able to see volume growth.
First question can you talk to a little bit about that because obviously theres.
No meaningful headwinds.
Just can you talk to some of the dynamic specifically.
Yes, certainly in the east there is a lot of a lot of headwinds right now.
Because it is of not just intermodal competition, but truck competition I know we had several large.
Last year that converted as much as 15% of their local east intermodal back over to drop because of the fluid capacity in the truck market.
We do think that this year that we're going to again, it's going to be a little worse off than the first half.
But we do believe that.
We're going to see truck capacity good.
Tighter, we're going to see the opportunity to continue to increase our pricing and we're very very focused more so than ever I think.
Making sure that the business, we do go after aggressively.
Our network is going to add a lot of value to it.
So I feel very confident then.
In our forecast for this year and again I think that.
The Comparables are there kind of low I mean, when you when you look at I think thats. The first non spring peak I've ever seen was last year and we've just more of a less a function of not having a spring, but also just with the.
Sorry pull forward so.
And the if you look at the broader economic climate consumers doing well. So again, we do believe the gradually and by the second half it should be a pretty strong demand environment.
And to complete that pod.
Given to the back half of the year and.
The inflection is kind of muted for whatever reason.
How much more opportunity do you guys have on the cost side, recognizing you've done a really solid work, thus far and I want to minimize that but what how much. Further can you go work can you go and maybe you can talk a little bit about some of the I T capabilities.
The timing of when those projects begin to layer on as well as some some incremental cost opportunities that you may still have.
Sure. Yes. This is Phil as soon as as we laid out I think the opportunity in our trucking organization is very large and were very early stage in achieving those savings I think as the.
Numbers that we've laid out we're we're confident that we're going to be able to head and we continue to find more opportunities to drive improvements. So.
As we're digging in as we're really looking through all the detail within the business. We are we're finding significant opportunities that are going to continue to drax forward. So I feel.
Very good about upside in the trucking division that will drive in the back half and then as you mentioned the investments we've made in technology will really start to drive in the back half in particular in our dedicated and logistics businesses as we get rid of redundant legacy software, but also in the way that we're able to optimize our drivers and the.
Way, the we're able to leverage our network to provide better solutions to our customers and purchased more effectively we're doing some really creative things and logistics than I think will allow us to continue to move forward in particular in LTL, where I think we have a best in class solution. So that those savings to our customers we get to participate in that as.
Well and once again really eliminate redundant system costs, which are on top of US right. Now. So were we have we do think we about side and we're going to continue to push to keep identifying more opportunities.
Got it thanks.
And our next question comes through tabs Fowler from Keybanc. Your line is open.
Great Thanks, and good evening.
So I think that we've kind of tackle the nuts and bolts of the guidance, but maybe to take a step back and think about at a higher level on can you talk about I mean, what would put you at the low end of the range versus the high end of the range and I guess, what I'm curious about is maybe how the low into the range has been stress tested and what sort of.
Your volumes will get you there and then you get your the high end of the range really what's that contingent on is that a better volume outlook in intermodal is it better pricing. So maybe just some some high level differences between the high in the low end of guidance, yes, sure Todd It would be on upside would be and getting to the higher end would be if we have a stronger peak spend this past year.
With quite possible, if we havent spreading peak season.
If the truck market title sooner than the second half 2020, and it's more attractive than we anticipate we get to the high end and then if we.
As Bill mentioned, just a little bit earlier, we're constantly adding to our list of opportunities.
For cost savings have to the extent, we realize more cost saving from the profit improvement initiatives that we've laid out that would be certainly top end of that at that range and then.
We've got great growth initiatives in our service lines include even though intermodal.
Volume low.
Automotive revenue will probably only be up slightly in a dedicated logistics truck brokerage, we've got lots of opportunity there in the pipeline as well those business line.
Some of them have higher gross margin as a percentage down then intermodal and that we that will opt it could also be upside if the ground them.
More than we anticipate.
The downside.
A recession coming along or competitive pricing actions in intermodal.
And the truck market doesn't title like everybody thinks that well.
We don't think they'll get a whole lot a downside.
Sorry, I didn't mean in.
Yes.
Terry just to that planting to fill gave some volume cadence and basically down in the first quarter, but in progress of the getting better so at the low into the guidance would that imply flat intermodal volumes or to be something that would actually binds would remain negative for the whole year.
No it would be mid low to mid single digits for the whole year.
That it would look like so that your volume yeah.
Great. Okay, and then I am just for my follow up can you talk I know you don't give the specific margins by your segments the key rank where.
Really the operating margins are and then from an opportunity set you really sound like that dedicated still has a lot of.
From a margin profile, but when you think about the cost initiatives, maybe kind of a sensor order of magnitude of how much margin improvement you think you can see from where you're at currently.
Kind of when you implement some of the cost initiatives, where the margins can be.
Sure so.
Well to enter intermodal has.
In our highest operating margin business and and we've done an excellent job I think in driving improvements there in our pricing in our our network strategy. We still have a lot of room in our trucking operations, though and our street operations I think can be a differentiator for us in the marketplace. If we get that right both to.
Drive above market growth, but also to improve the profitability within brokerage we've done a great transformation, there and actually in the quarter. It's our highest margin. It was our highest margin business line and I'm very pleased with what we've been able to accomplish there and what the team has done and so.
That it's been a fantastic evolution now if we're able to layer in growth on top of that great infrastructure I think the opportunities significant even expand upon those record margins that we have within brokerage.
For dedicated which would be third we.
We have significant opportunity and weve laid that out very clearly I think.
I think it's the four key categories of the maintenance procurement revenue management and.
Continuing to make sure that we're focused on driver utilization and retention and so we're very focused on that we're putting in new systems and 50% of the way through that process as well. So I think there is significant upside there and that would be the highest growth.
From a margin percentage opportunity that we have this year and then once again finally with logistics I would tell you a very similar story to what we've done with brokerage where we changed our model we improved our go to market strategy, we enhanced our pricing and the continuous improvement that we're bringing to our customers and now as we're layering business and on top of that and not having to add.
Head count the operating margin expansion can can be pretty significant and once again, we're just continuing to evolve that that service line and bring more solutions to our customers. So we feel really good about the growth and margin expansion opportunity there as well.
Okay No that's super helpful. Phil I really appreciate the color with all of that.
And Dave will have to catch up on the Flyers ranking right now it and see if they can I think you might expectations tail number six wells because some tickets from a bottle for.
[laughter] alright, thanks for the time guys.
[music].
Your next question comes from Brian Ossenbeck from JP Morgan Your line is open.
Hey, good evening, thanks for taking the question.
Just wanted to see if you could talk little bit about.
I've been hearing more of.
[music] lane opportunities reopening.
Our model side.
And just if you can lay out we think you might hear from or see you from the rails and that on that front and also.
How do you think with with coal doing what it's doing in carloads, where they are.
How do you think rails will you partnership for intermodal growth.
Recognizing that it's not.
That's the best margin opportunity for them.
How do you how do you see those all those factors playing out this year next year.
I think as far as.
Intermodal overall has certainly the margins have increased and been enhanced by the rails.
There are also running at much more efficiently than they ever had before as a result of implementing PSR varying levels I.
I would like to say on that that the rails write another service is as good.
And as we've ever seen that and I.
I think when you're consistent you're on time, you're running efficiently, but that makes the gross margin the profitability of that line of business much better.
Our relationships with our railroads are very strong I think that.
They certainly are looking.
To partner I think was with.
Strong players and that.
We're extremely well positioned with our our asset base and with our Drayage fleet.
Our size, what our rail partners to be able to balance their networks and.
Really have a very very strong.
And mutually beneficial relationship.
Yes, and this is bill and I would just data as you've kept on the intermodal lane opening just specifically.
For us we maintained service through that disruption on most of the lane that were cancelled outside of a few.
Specifically on the Trans Con.
On side, we maintained a lot of that service just us taking over the rubber wheel. So it didnt have a very large impact that recent announcement, but we are hopeful and.
Our pushing obviously to have wayne's reopened and would like to expand the service given the great on time performance that they're showing right.
Now and once again as you mentioned an appetite to grow.
Okay and then on the.
The big chunk of that happened.
Last year conversion in the local east you may be just.
Some thoughts on that the pace of conversion if you expect to get this.
Early switchers back or if.
Our getting something that's maybe a little more sustainable.
How do you expect and where do you think will drive back the the shippers who converted.
Other than price and how quickly you think that might happen.
Yes. This is still certainly are hoping to see that business convert back we do not want.
On a chase truckload spot market rates in order to get that we do think that there is a bottom being put in on the spot market and overtime through the first half of the year, we will see a continuing cycle of tightening.
A lot of our customers who are currently opening RFP is our.
We're looking very seriously at converting business back to intermodal from talk recognizing the impact that a significant tightening could have and that the likelihood that that will occur in the back half. So we are cranking that to the value that we think we're providing where we don't.
Certainly want to chase.
Truck onto though and.
But we are anticipating a good portion of that coming back what we want to make sure that we're supporting the right customers. Once again for the right freight that can help us create more balanced meal is that I think I'd add to that is that the consistency of the rail service right. Now is very very good and so it makes us.
Much more truck like a truck competitive.
So and again just with the intermodal overall with.
We do have better costs for those part.
Environmentally more friendly and if you have the consistent service.
I think that though we will begin to see some conversions as the type work truck market tightens.
Right.
One last quick one for Terry can you give an update on what you expect for the the buyback program maybe some parameters.
Having seen it step up this this last year, but kind of take a pause in the last quarter. Thank you.
Yes, we expect to use that cash to reinvest in the business to capital.
Expenditures and acquisition Bert we do talk about share buybacks that every board meeting that welcome the net.
Next week or so that will talk about it that and as you said you know we did execute on $25 million with stock that this year. This past year. So it's something that we.
Look at repeatedly.
Okay. Thank you for the time appreciate it.
And our next question comes from Jason I know Cowen and company. Your line is up.
Hey, guys. This is Adam on for Jason I, just wanted to ask first of all.
With the with the current.
The virus now once ask if this has had any impact that you guys have seen in terms of supply chains.
Whether you're hearing anything from Freeport contacts are from people in China about potential slowdown in supply chain arena and volumes.
Sure this facility at coming out of the lunar new year typically.
You see a pickup in demand, obviously, that's going to be delayed with the krona virus, we're seeing in close contact with our customers contact overseas support on demand forecast.
We do believe there will be a delay.
In import shipments.
But we.
No the exact magnitude of bad at this time.
And we're staying very close once again to our shippers and our customers to make sure that they.
Have all the information may need and that we're sharing what those forecasts look like.
We do so as I mentioned, we do anticipate a little bit of a bottleneck being created here in somewhat of a surge of demand which.
Could actually drive a spring peak as well if if it is prolonged even beyond.
Two weeks to a month of additional delays so.
That would be where we're at right now and once again, we're staying very close to it and just look into that impacted so basically could be a short term headwind booked a longer term it could be.
A bit of a tailwind as you could see of a large surgeon business coming as demand certainly there and obviously like up I believe was home by that.
Just to close down several plants as a result over the impact negatively impacting.
Their supply chain.
Got it appreciate the color there and just as a follow.
Following up I want to that kind of revisit the PSR conversation.
Having before.
You mentioned that from what you've seen Lps ours kind of successfully.
Implemented thus far but obviously this has happened.
Firemen with volumes down mid to high single digits.
Down seven and a.
5% fourth quarter.
And so I wanted to ask what gives you confidence that the PSR implementation will kind of continued to be successful.
And service levels will continue to be improved.
Thanks, and should volumes come back.
Yes. This is Dave I would say that the way that.
The railroads have gone about the PSR implementation is such that this is sustainable and also repeatable I think that.
They release study their networks they have taken out costs are they've improved.
Our overall trends within their turns on the intermodal equipment.
So while could we.
We see some hiccups with volume increasing I think as long as its within.
10% or less at any given time that.
The consistency will be there I don't see any.
Downturn in the overall service levels.
10% historically relative.
Had some issues, but again I think with just the the efficiency of the ways that the going about.
Changing the way their networks operate.
I really think that they can take on a lot more volume without having any negative service impact.
Got it appreciate the color there. Thank you.
And does remind you mentioned the Q.
Please press Star then one and you touched on sound.
Your next question comes to discounting matrix Quianna. Your line is open.
Yes.
Just to clarify does your guidance anticipates that you will raise intermodal pricing more than your rail inflation that's good.
Season.
It's certainly something we're going to work towards.
Obviously in pricing environment right now I would say no, but we do believe that the pricing environment throughout the year will improve.
And we'll be able to get to the low single digits.
By in the second half.
So what is it just stays like it is today the answer would be no.
So you say low single digits, you mean for the full year on average are in the second half explicitly.
Second half.
Thank you and Terry can we walk through some of the cash flow implications here.
Can you give us a look at what cash from operations, roughly would look like or free cash flow or both.
Assuming your Capex and on the building investments that extra 35 million at your Capex budget is there any more of that and 21 or is this.
This is that the building will be completed and the followed this year that we could be down with that so.
I can tell you that we think that.
EBITDA for the year will range from $290 million to $295 million.
Yeah.
Free cash flow, where guesstimating could be between $110 million in $130 million, we're going to.
Have a little more.
Capex this year than we had last year about 25 million Lauren than we have a little bit higher cash taxes.
So that's our best guess that occurred time.
And you made a comment earlier about funding your capital budget with a mix of.
And cash on hand.
You've got 120 30 million excess cash now you just so you're going to generate over 100 million. This year, just just curious about financing decision and the applications there and that's all for me. Thanks.
Yes, we are.
Our paying cash for our building.
We do have $169 million in cash at the end of that you're correct and then we look at every purchase and see if that makes more sense to finance it or to pay cash for it and we'll do what is that.
The comfortable.
When it has done I think continuing to have dry powder for.
Acquisition is an important priority for us and our continued diversification strategy, we think continuing to offer our customers a more robust suite of solutions is adding value and so.
We plan to continue to utilize the cash on hand for the investments and after.
Initiative as well.
Thank you.
Your next question comes to Tom Wadewitz. Some GBS your line is open.
Hey, This is my triad I'll on for Tom.
So I mean could you just run through the timing of intermodal bids and 2020 just in terms of how many are coming up for bid and one.
Due to Q3 Q.
Sure we can chime in the first quarter, it's about 33% in this second quarter, it's about I'm trying to create quite a 39% second quarter, 44% third quarter, 6% fourth quarter, 11% and were 7% through at.
At this point with 19% in progress yes.
Okay.
And did you provide.
Intermodal volume growth number for January sorry, sorry, if I understood.
We did not we it was down about 7%.
That's a percent okay.
Well, then I'm going to the good news the good news on that is.
Four of the weak five the first week in February was actually up 2.2%. Although you have to take the polar vortex out so was down about 4.2% when you account for that so the trend we're seeing is positive.
We sold a negative territory, but it certainly is positive and we also.
Warning in across so we'll be shortly running across lower comparables.
Okay.
And just to go back to the margin opportunity discussion I mean, how long do you think will take to get the margins in the trucking segments took to where you want them to be assuming the macro cooperates I mean or are we on one euro tiers.
So how should we think about that.
Sure with dedicated I think we're early stages I would say in 2021, I'm anticipating being at a very competitive operating margins within that segment with intermodal. Obviously, the drayage is a significant piece of our cost structure somewhere between 30, 40% of.
Any load and.
So we're very focused on reducing that cost than we think that that will obviously improve our overall intermodal operating margin as well, although we have continued to improve that significantly but.
I would tell you given a good pricing environment for truckload and intermodal we will see.
The operating margins expand once again and.
With dedicated though we feel very good about the progress, we're making I would say thats more 2021 story as well.
Okay. Thanks appreciate it.
Your next question comes so just to non from Stephens. Your line is open.
Thanks for taking the.
A follow up not wanted to actually follow up on that question about the cadence of bid season. So it sounds like in that first half of the year over 80% have your bids are going to be repricing and I know you said pricing should get better in the second half, but that's really not going to impact a lot of after.
That's it sounds like based on that cadence. So could you just speak to what your all in assumption is for intermodal pricing for 2020 at that at a hole.
Yes, overall, it flat to down slightly from it what our assumption is and so.
Because.
I'd like to say and also with the one element if pricing is what happened during peak season, and we've been pretty realistic there that we hope we might have some upside.
In 20 true compared to 2019, we assume similar peak season pricing.
To 19.
There should be a much better peak in 2019, obviously that is big driver I would also tell you that there are larger bid in the second half that take place. So if we do see a solidifying the market. There is an opportunity to raise pricing on some pretty significant pieces of the book of business.
And then the other piece I would just highlighted there was a pull forward or a break in.
Contractual terms on some of these bids and so with those if the market does turn we will.
We have an opportunity to discuss those rates with some of those customers who decided to pull forward guidance that we we.
Do you anticipate.
Making sure that were participated in the market, but that were.
On customers, where that happened, we're having discussions on what the market is telling us.
Okay. That's that's really helpful. And then maybe a couple of things just quickly on the guidance Terry for the cadence you.
About flat trends year over year in the first half could you talk more specifically about the first quarter. It's just a little bit challenging I guess to model that quarterly cadence with the pipeline, then and logistics and brokerage and not knowing the timing of when that's rolling on so any color on the first quarter and then I also.
Wanted to ask if share buybacks were contemplated in the 2020 guidance.
Yes share buyback, they're not contemplated in that 2020 guidance, because we're going to hold our cash for an acquisition and were expecting to be successful inflates, Lenny and getting getting a great acquisition.
We.
Expect in terms of your first question, Nick what do we expect for that first quarter, we expect gross margin as a percentage of sale.
To be down compared to the fourth quarter.
Maybe 20 to 40 basis points due to seasonality, we did see a peak in the fourth quarter, although not as.
Significant at 2018.
Well also have some cost headwind at Kate deck, and we expect intermodal pricing to be flat to down in the Earth's appia and finally, the insurance and claims.
Our projected to increase compared to 2019, but we do re out we do believe will.
Realize the saving my profit improvement initiatives that will help to offset some of those headwinds. So thats why overall, we think that it could be down 20 to 40 basis point.
Okay that helps I appreciate the time.
Yeah.
This concludes the question answer session I'll now turn the call back over to Dave Yeager for closing remarks.
Okay again, thank you very much for participating on hubs.
Quarterly earnings call as always Terry Phil and I are available of additional questions come up but again, thank you for participating.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.
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